• 4Q16 EBITDA up 27%
• FY16 net profit boosted by tax credit
• Higher DPS declared

FY16 helped by tax credit and better 4Q

Golden Agri-Resources’ FY16 PATMI of US$399.6m came in within expectations, forming 99% of our estimate. This was helped by a deferred tax income arising from the increase in tax depreciable value of plantation assets. The net tax impact from a revaluation of some of the group’s plantation assets was US$304m, including US$62m in 4Q16.

Looking at core operating numbers, FY16 revenue was up 11% to US$7.2b, while EBITDA was 5.5% higher at US$571.7m. Notwithstanding a one-off allowance for impairment loss made on certain fixed assets in China amounting to ~US$34m, 4Q16 was also a better quarter, with revenue up 38% YoY to US$2.1b and EBITDA up 27% to US$179m, underpinned by higher CPO market prices, recovery in production as well as stronger margins in the downstream business.

Production set to recover

Looking ahead, management sees production possibly returning to 2015 levels, or a 15% growth vs. 2016, while cost of production would see slight changes, if any. The group remains focused on replanting with higher-yielding seeds, while they are also looking at relevant technologies including those relating to precision agriculture practice.

Sees upside in margins for Palm and Laurics

The Palm and Laurics segment’s FY16 EBITDA grew 66% to US$181m, with 2.9% margin (vs. 1.9% in FY15). Management believes there is upside to EBITDA margins as they see room for improvement in efficiency across each stage of the value chain.

Expectations for CPO price to trend down

With expectations of recovery in palm oil production, based on data points for global palm oil demand at this juncture, OCBC Treasury Research remains bearish on palm oil futures into 2017, and expects palm oil price of MYR2,650/MT at end-year. Nonetheless, GAR believes that demand can pick up through the implementation of the biodiesel policy in Indonesia. Following adjustments to assumptions, our fair value is slightly higher at S$0.38 (previous S$0.37). Maintain HOLD. A higher final DPS of 0.635 S cents was also declared, vs. 0.502 S cents last year, representing a 30% payout.

Source: OCBC Research - 27 Feb 2017